The Palestinian banking sector once again entered a state of emergency yesterday, after Israeli Finance Minister Bezalel Smotrich announced a decision not to extend banking cooperation between Israeli banks and their Palestinian counterparts.

In a statement yesterday, Smotrich announced the suspension of extending monetary cooperation relations between Palestinian banks and their Israeli counterparts, which would harm the banking sector, the most important Palestinian economic sector.

Smotrich said after European countries recognized the State of Palestine: “We will not extend the cooperation relations granted to Israeli banks, which transfer money to banks in the West Bank.”

The Israeli decision comes hours after Ireland, Norway, and Spain simultaneously announced their official recognition of the independent State of Palestine, which will enter into force on May 28.

After the announcement of the three countries, the Israeli Foreign Ministry decided yesterday to summon the ambassadors of Spain, Norway, and Ireland to Tel Aviv for “consultations.”

Currently, two Israeli banks, Discount and Hapoalim, manage Palestinian banks’ relationships with the banking system in Israel and the world.

To protect them from lawsuits filed against the Palestinian Authority and its banks in the United States on charges of “transferring funds to terrorist groups,” the Israeli government issued a decision 3 years ago to protect the two banks from any charges, a decision that is renewed annually, with the signature of the Minister of Finance.

Without this protection, the Palestinian Authority would be stripped of its immunity, and Israeli banks would also be vulnerable to lawsuits.

In early April, the Israeli Ministry of Finance agreed to sign protection for the two banks for a period of 3 months, instead of a full year.

Anatolia learned from sources in the Palestinian banking system that banks are currently thinking about how to disrupt Smotrich’s decision, which will take effect by the third quarter of 2024.

Smotrich's decision means that the Palestinian economy will be paralyzed, especially with the presence of hundreds of millions of dollars per month in cross-border commercial transactions and bank payments.

The relationship with Israeli banks is primarily a Palestinian banking interest, because cash transfers for trade purposes between the two sides will not take place without this relationship.

The volume of trade between the two sides per month is approximately 500 million dollars, according to data from the Palestinian Central Bureau of Statistics, while the value of transfers for all purposes exceeds approximately one billion US dollars per month.

Also, Israeli banks are considered a major key to the access of many Palestinian banks to the global banking system, and without this relationship, the majority of banks in the Palestinian banking sector will lose most of their basic functions as banks with full powers.

The total assets of the Palestinian banking sector amount to approximately 22 billion dollars, while customer deposits as of the end of last April amounted to more than 17.5 billion dollars, and facilities were close to 12 billion dollars.

There are 13 local and foreign banks operating in the Palestinian banking market, with 7 local and 6 foreign banks, including 5 Jordanian banks and one Egyptian bank.

Under the Paris Economic Protocol, the Palestine Monetary Authority supervises the banking sector and serves as the official financial advisor to the Palestinian Authority.

The Monetary Authority regulates all types of banking activities, including its foreign activities, licensing locally established banks, their branches, affiliated bodies, joint ventures, and offices representing foreign banks, and approving control over shareholders.